Passenger revenue growth outstripped by the steep increase in fuel prices and strengthening of the Ringgit has impacted Malaysia Airlines’ first quarter performance for 2011. The airline released its first quarter results for the period ending March 2011, reporting an operating loss of RM267 million.

Operationally, in comparison to the same quarter for 2010, the national carrier recorded marked improvements in key aspects of its core business, with a 10% increase in traffic, leading to an improved passenger load factor of 76%.  This has resulted in an overall 10% increase in passenger revenue, and includes a significant positive contribution from the high- end business, which registered a revenue increase of 40%.

The non-fuel unit cost downtrend was rigorously maintained and a reduction of 6% over 1Q10 was recorded for this period. The cargo operations this quarter also registered a 2% yield growth for the quarter, despite softening demand.

However, these positive trends were insufficient against the various factors ranging from natural disasters, political unrest in some parts of the world and the onslaught of fuel costs that surged 32% (RM321 million) from the same quarter of 2010. The steady strengthening of the Malaysian Ringgit against major currencies, further impacted the overseas revenue for this quarter.

Moving Forward

Early this year, IATA alerted that global airline net profits will halve in 2011,  as rising costs, especially oil prices, offset increasing demand. The world body now predicts global net profit to be US$8.6 billion this year, down from US$9.1 billion forecast in December 2011.

IATA forecasts this revision based on its estimate that the oil price will hover around US$96 per barrel for Brent crude this year, up from US$84 forecast in December last year. As a result the industry’s fuel bill will rise to US$166 billion this year – 29 % of total costs—from US$139 billion or 26% in 2010.

Malaysia Airlines’ Managing Director and Chief Executive Officer, Tengku Dato Sri Azmil Zahruddin said, “Many airlines are already experiencing this impact. However Malaysia Airlines is committed to staying focused on our growth strategies, which include re-fleeting of the aircraft and enhancing the customer experience travel journey. We will not change our profitability targets and will work on adapting our strategies to ensure that the targets are met as best as possible, given the tough operating environment we are in.”

Some of these strategies include the enhancement of products and services, as well as aggressive marketing campaigns planned throughout the year.

The recent ‘Global Deals Dream Getaways’ campaign is the second impactful and aggressive marketing campaign for the year,  after the Malaysia Airlines Travel Fair in February and is showing encouraging results.

The ongoing fleet renewal project which features better products and services with enhanced aircraft technology, presents significant opportunities to improve the airline’s revenues further. Malaysia Airlines has to-date ordered 35 Boeing 737-800, 15 Airbus A330-300 and six Airbus A380-800.

Of these, three B737-800 were received in 2010 and another six will be in by end of this year, whilst the remaining 26 will be delivered by 2014. Malaysia Airlines is the first full service airline in the world to operate this aircraft with the new Boeing Sky Interiors.

Delivery of the A330-300 commenced in April this year, and by December 2011, six aircraft will be in the airline’s fleet, with the balance delivered by 2016. Both the B737-800 and A330-300 aircraft will serve the growing markets of South Asia, China, North Asia and Australia.

Next year, five A380-800 will be delivered with the remaining one to be received in 2013. This aircraft will primarily serve the Kuala Lumpur – London and Kuala Lumpur – Amsterdam routes.

The latest fleet of B737-800, A330-300 and A380-800 is aimed at creating a strong and sustained platform for Malaysia Airlines to serve its discerning customers and for the airline to remain profitable.

As for service innovations, the national carrier is the global pioneer of the introduction of the iPhone based “MHDeals” application, allowing customers to select the best airline deals from nearby airports. Malaysia Airlines has created a milestone in the aviation history, being the first airline to have exploited augmented reality commercially, as a new channel for ticket sales. It is also the first airline in Asia to place its inflight magazine, “Going Places”, using the Apple iPad application.

In addition, the groundbreaking launch of the MHbuddy application on Facebook, enables the social media’s 500 million users to book, pay and check-in for Malaysia Airlines’ flights, whilst sharing their trip details with their social network.

Earlier this month, Malaysia Airlines received the “Innovative Leadership in Globalisation” award for the airline sector.  The award accorded by the Malaysian Institute of Directors is in recognition of the company’s consistent perseverance, discipline, endurance and investment for leading international excellence and achievements in various aspects of commercial airline operations.

Although impacted by fuel costs and weakening of the major currencies of the world, Malaysia Airlines continues to exercise prudence with greater resolve to further tighten costs to increase both loads and yields.